ECONOMICS FOR BUSINESS

MODULE I

Economics Introduction
Economics is the study of how societies use scarce resources to produce valuable commodities and distribute them among different people. Points . Efficient use of scarce resources. Un limited wants Limited means. Having alternative uses

What is Economics?
Two important terms: Choice Scarcity Study of choice under conditions of scarcity Scarcity Situation in which the amount of something available is insufficient to satisfy the desire for it 1. 2.

Why Study Economics ??

To understand the world better Youll begin to understand the cause of many of the things that affect your life To gain self confidence Youll lose that feeling that mysterious, inexplicable forces are shaping your life for you To achieve social change understand origins of social problems and design more effective solutions To help prepare for other careers Youll discover that a wide range of careers deal with economic issues on many levels To become an economist

Economics: The Basics

 When wants exceed the resources available to satisfy them, there is scarcity.  Faced with scarcity, people must make choices.  Economics is the study of the choices people make to cope with scarcity.  Choosing more of one thing means having less of something else.  The opportunity cost of any action is the best alternative forgone.

Micro economics:
The word micro means a millionth part. Microeconomics is the study of the small part or component of the whole economy that we are analyzing. For example we may be studying an individual firm or in any particular industry. In Microeconomics we study of the price of the particular product or particular factor of the production

 Microeconomics The study of the decisions of people and businesses and the interaction of those decisions in markets. The goal of microeconomics is to explain the prices and quantities of individual goods and services.

What is micro economics

Because we cant have everything, we need to make trade offs and microeconomics helps us make those tradeoffs. A society faces 3 key tradeoffs: 1. Which goods and services to produce 2. How to produce them How much labor and inputs should a firm use to produce a car 3. Who gets the good and services (allocation)

What is microeconomics????
Workers need to choose how to allocate their time between labor and leisure. Firms need to choose how to allocate their investment between human capital and machines. Households need to choose how to allocate their incomes between savings and expenditure.

IMPORTANCE OF MICRO ECONOMICS

Helpful in understanding the working of free market economy. The micro economics helps us to understand the working of free market economy. It tells us as to how the prices of the products and the factors of production are determined. It throws light as to how the goods and services produced are distributed among the various people for consumption through market mechanism.

 Helps in knowing the conditions of efficiency. Microeconomics helps in explaining the conditions of efficiency in consumption, production and in distribution of the rewards of factors of production. It highlights the factors which are responsible for the departure from achieving the optimum efficiency. It suggests policies also which help in the promotion of economic efficiency of the people. Working of the economy without central control. The microeconomics reveals how a free enterprise economy functions without any central control. Study of welfare economy. Microeconomic involves the study of welfare economics

Limitations of Microeconomics (1) Assumption of full employment in the economy which is unrealistic (2) Assumption of laissez faire policy which is no longer in practice in any country of the world (3) It studies part of the economy and not the whole.

Macro Economics
Macro economics is the study of behavior of the economy as a whole. It examines the overall level of nations out put, employment, price and foreign trade. Macroeconomics is concerned with aggregate and average of entire economy. e.g. In Macro economics we study about forest not about tree Macroeconomics The study of the national economy and the global economy and the way that economic aggregates grow and fluctuate. The goal of macroeconomics is to explain average prices and the total employment, income, and production

Importance / Usefulness of Macro Economics

Functioning of an Economy. It gives a bird's eye view of the phenomena of economic universe. It provides an idea of an economys aggregate output, income, consumption ,savings and employment. Indispensable for accurate knowledge Behavioural patterns that are impossible to be omitted. Economic Planning Extremely helpful to the govt in formulation of appropriate economic policies for tackling problems of inflation, balance of payments, overpopulation and under production. Study of National Income. Analyses the national income to formulate its policies

 Study of Economic Development Suggesting ways and means to attain economic development. Study of Fluctuations Suggests methods to regulate these business fluctuations. Solution for economic problems It provides a solution to economic problems of an economy like unemployment, population, poverty ,rising and falling prices. Based on empirical results

Limitations of Macro economics

Dependence on Individual units. Sometimes the result of these aggregates are different from the individual behaviour. Heterogeneous units. Unable to influence society equally. Contradictory Role of less aggregative analysis Suffers certain problems due to statistical techniques. The recently introduces computational procedures and programming techniques have reduced the role of aggregative analysis.

Micro versus Macroeconomics

What is the difference between micro and macro economics? Microeconomics: behavior of individual economic units like consumers, producers, landowners, families, etc. How and why do they make the decisions they make? Macroeconomics: analyzes how the entire national economy performs. It analyzes unemployment, inflation, price levels, interest rates (many things we take as given in microeconomics).

Differences.
While microeconomics stresses on the individual firms and consumer, macroeconomics deals with the whole economy as a single unit. the former takes into consideration the demand and supply of the individual goods and services, while the later takes into consideration the aggregate of demand and supply of all goods and services In microeconomics, the equilibrium occurs when the quantity demanded equals the quantity supplied In macroeconomics, on the other hand, equilibrium occurs when the aggregate demand equals aggregate supply

Production

Prices

Income

Employment

The Business Environment

Micro environment Market environment Macro environment

What is BUSINESS..?
Business is that complex field of commerce and industry in which goods and services are created and distributed in the hope profit within a framework of laws and regulations. Business decisions& actions are in terms of making profit & avoiding loss Business is an important institution in society. society cannot do with out business. Business needs society as much.

 Business Environment refers to the totality of all the relevant forces external, to and beyond the control of ,an individual business enterprise and its management. The ideological beliefs of the ruling class Value systems of the society Rules & regulations laid down by the govt. The monetary policies of the Central Bank.. some of these are staticsome only relatively.others changing every now and then.. these vary from country to country , even region to region

 There is a direct relationship between successful management and the influence and impact of environmental change Change is a process of constant renewal and regeneration in every conceivable sphere of society Business organisation as the central component of the business environment are naturally also subject to change The interaction between the environment and a business organisation is an ongoing process that results in new problems and new opportunities

The business environment: examples

Technological innovation Globalization Growth of poverty Collapse of emerging markets Shift from manufacturing jobs to service jobs New ways of doing work

Business Environment: major types

1 Micro Environment 2 Market environment 3 Macro environment

Micro - Environment
Mission and objectives of the organisation The organisation and its management , e.g. marketing , financial and purchasing management. Resources human resources , capital and know how

Market environment
Consumers needs , purchasing power and behavior Suppliers Intermediaries Competitors Opportunities & threats

Macro - environment
Technological environment Economic environment Social environment Physical environment Institutional political environment International environment

Macro environment
Macro variables have an effect on the market environment , decision making by management and on one another Emphasis is on change caused by the uncontrollables and implications for management 1.Technology Technology and furniture business Originates in research and development New processes , methods & even approaches to management Technology results in higher productivity Source of competitive advantage

 2) Economic Environment: It is very complex and dynamic in nature that keeps on changing with the change in policies or political situations. It has four elements: (i) Economic Conditions of Public (ii) Economic Policies of the country (iii) Economic System (iv) Other Economic Factors: Infrastructural Facilities, Banking, Insurance companies, money markets, capital markets etc

Economic Environment
CRITICAL ELEMENTS The institutional framework of the environment. relative roles of private sector, public sector, joint sector etc. The physical framework of the environment level of economic development ,the structure of the economy , per capita income.resource availability .occupational structure.. pattern of foreign trade .structure of savings, investment and capital formation ..significance of primary, secondary and territory sectors Physical anatomy of national economy

Economic Environment.
Influenced by technology , politics and the social and international environments. Cross influences result with change in economic growth rate , levels of employment , consumer income , the rate of inflation , interest rate & exchange rates Gross Domestic Product total value of all goods and services produced within a country 7 8 % signals an economy which grows fast to create jobs for its country Exports more products than it imports and stable currency

 Inflation higher rate than countrys major trading partners & international competitors results with a reduction in international competitiveness Monetary policy affects money supply , interest rates and strength of the currency Fiscal policy affects business and consumers through taxation and tax reforms

3 Non Economic Environment

Non Economic Environment: Following are included in non economic environment: (i) Political Environment: It affects different business units extensively. Components: (a) Political Belief of Government (b) Political Strength of the Country (c) Relation with other countries (d) Defense and Military Policies (e) Centre State Relationship in the Country (f) Thinking Opposition Parties towards Business Unit

4.Social environment
Demographic change increasing or decreasing population rate Urbanisation Levels of education Changing role of women Consumerism Social responsibility & business ethics

5.Physical environment
Population & health patterns land degradation, pollution, malnutrition and illness. Food Water Energy and climate Biodiversity

6.International environment
Globalisation borderless world

BUSINESS ETHICS